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Taxes on Selling Spanish Property

By Raymundo Larraín NesbittDirector of Larraín Nesbitt Lawyers8th of December 2014

Introduction

A seller can expect to pay, by law, two taxes:

I. Capital Gains Tax (or CGT for short) and

II. Plusvalía Tax.

However it can be agreed in practice, and frequently is, that a buyer pays for Plusvalía tax. Confusingly you may find that some articles refer to both taxes as if they were one and the same; they muddle plusvalíamunicipal (town hall tax) with plusvalía fiscal (which is Capital Gains Tax in English). Needless to say this is a glaring mistake as they are two distinct taxes; the former is paid to the town hall where the property being sold is located and the latter to the state (whether as Personal Income Tax or Non-Resident Income Tax dependent on the taxpayer’s residency status).

Following new regulation, a seller may be required to produce an Energy Performance Certificate (couple of hundred euros) in addition to CGT and Plusvalía Tax.

The Spanish Government published in the Official Law Gazette (BOE) last Friday 28th of November a set of new tax laws which will impact on a seller’s taxation. Law 26/2014 amends both Personal Income Tax (IRPF) and Non-Resident Income Tax (IRNR). These changes will come into force as from the 1st of January 2015.

If you own property purchased before the 31st of December 1994, and plan to sell soon, you may want to take tax advice before the new rules kick in as from the 1st of January 2015. You stand to pay a much larger capital gains tax bill as a result of these changes. It may be in your best (fiscal) interests to sell ahead in 2014 in lieu of 2015. You can read further on these fiscal changes on following this link: New Fiscal Laws Will Hammer Some Property Vendors.

I. Capital Gains Tax

Capital gains is paid by residents of Spain on their worldwide assets and by non-residents on property that they own in Spain. Special attention has to be made on whether one holds resident or non-resident status as reliefs and allowances differ depending on the case. I highlight in each section below which applies.

1.- Definition

CGT can be defined as the tax applicable on the profit you make on selling an asset (art.33 IRPF).

I stress it is the profit that is taxed (the gains), not the amount of money you receive.

This amendment, from last week, is welcome news as only a few years ago CGT was a whopping flat rate of 35% for non-residents. The Spanish government, nudged by the ECJ’s landmark ruling of 3rd of September 2014, has decreased CGT to bring it on par with residents.

3.- CGT Mitigation

A seller can mitigate, within legality, the profit figure on selling to reduce his capital gains tax liability. This can be achieved threefold:

a) Abatement Coefficients: Reductions Relating to when the Property was Purchased

Depending on when the property was purchased abatement coefficients kick in reducing the taxable base by a given percentage on an annual basis. Unfortunately, after the new set of laws was passed last week, this has been partially scrapped as from the 1st of January 2015. You can read further following this link.

Notwithstanding it still applies to properties bought before the 31st December of 1994 with a capped limit of €400,000. This is a one-time credit, meaning it may be used only once. You can however use it across multiple sales providing the total sales value is below the €400,000 threshold (i.e. two property sales of 200k each). Any amount over and above will not benefit from it.

This allowance used to give relief for the effects of inflation in computing gains over time. This correction factor brought property values in line with today’s inflation. This has now been scrapped as from the 1st of January 2015.

c) Expenses to be Offset

Art 35.3 IRPF. These can be divided into two subgroups (purchase and refurbishment expenses):

• Estate Agent’s commission (the norm is that a seller pays it but can be agreed otherwise in which case a seller could offset it).

On average, purchase costs add 10 – 15% over and above the purchase price. As we can see a great amount can be offset against the CGT bill on selling if done correctly. Original invoices (hard copies) must be kept for all the above as prove for the Tax Office. Your appointed lawyer will of course pre-empt this by submitting them beforehand to streamline the procedure and save time.

II.- Refurbishment Expenses

Remember that expensive parquet you brought all the way from Bali at your wife’s behest? Well you can now offset all major refurbishments costs against your CGT liability so as to reduce as much as possible the profit. Any extensions or improvements done to a property can be deducted. Do not confuse these with ongoing annual maintenance costs which are not tax deductible. In practice it may prove tricky to distinguish one from the other. Remember to keep hard copies of all the licences and invoices for justification purposes.

Needless to say, it can be surmised from both subgroups above that all invoices from professionals must have VAT on them. Do NOT supply to the Tax Office ‘invoices’ which lack VAT. You don’t want new problems. So when you are asked in Spanish by a builder or professional: “Con o sin factura?” (With or without invoice?) you always kindly reply: “con factura, por favor” (with VAT, please).

You only shoot yourself in the foot by trying to play ‘smart’ and avoid paying VAT (not to mention it is illegal) as these purchase and/or refurbishment invoices can be deducted in full on selling your property in the future. Planning ahead is key for success.

4.- Under-Declaring on Buying Property – Unadvisable Besides Illegal

Besides being illegal it is on selling your property when you lose big time.

The money you failed to declare on buying so as to save yourself one-digit in VAT or Property Transfer Tax, depending on whether you purchased Off-Plan or Resale property, comes back to bite you on selling.

Why? Because now the tax man believes you have made a larger profit (defined as the difference between the price you buy and sell) than what you actually did. And this ‘greater’ profit is now taxed at two-digits!

We can see it with a simplified example.

An off-plan property is acquired in 2005 for €250,000. The buyer (illegally) under-declares it by €50,000; ‘officially’, in Deeds or ‘escritura’, it shows as €200,000. The buyer saved himself 7% VAT on €50,000 which amounts to €3,500.

The buyer then decides to sell it in 2014 for €260,000 (figure in sales Deeds).

From a tax man’s perspective, the seller made a ‘profit’ of €60,000 (260 thousand less 200 thousand declared) when in reality he only made €10,000 (260,000 less the real 250,000). The seller is taxed 21% on the difference, which is €12,600 (21% of €60,000).

So basically the seller tried to save himself €3,500 on VAT in 2005 and nine years later, in 2014, he ends up over-paying €12,600 in taxes which practically negates his meagre profit of €10,000.

Following on the above, the seller has effectively over-paid €7,000 in tax. This is the difference between what he paid as CGT in 2014 (€12,600) and what he should have paid legally for both VAT in 2005 (€3,500) and CGT in 2014 (€2,100) had he come clean and declared the real purchase and sales price. The seller has wiped out in the process his profit margin. Not to mention you can get caught under-declaring leading to new problems. Not a smart move any way you look at it.

Bottom line, do not under-declare on buying property as you stand to lose money (on over-paying taxes when you come to sell later on). Besides, under-declaring is illegal.

5.- Non-Residents: 3% Withholding Retention on Selling

As a security measure, and to ensure taxes are complied with, a retention of 3% is practiced at completion on account of a non-resident vendor’s CGT liability. The obvious risk a non-resident poses is that they are bound to leave the country soon after the sale raising a question mark on their tax compliance. To avoid such a scenario unfolding, a buyer’s lawyer is forced – under law – to withhold 3% of the agreed sales price and pay it into the Spanish Tax Office (AEAT). The Notary public witnessing the sale will ensure this is carried out. You can read further on this retention on following this link.

Two scenarios unfold dependent on the profit made:

1. If a vendor has made a profit smaller than said retention then he is entitled to claim back the difference for which there is a deadline (three months). A vendor will require a lawyer’s service to claim back this money as it is not a straightforward procedure. A refund is taking on average several months (twelve to eighteen), a number of pre-booked visits to the Tax Office and compliance with tax models (211 from the buyer and 210 for the seller) which need to be meticulously completed so as to avoid the Tax Office giving any excuse to hand back the retention or part of.

During this time the Tax Office will be actively liaising with the appointed fiscal representative at the registered Spanish address set for communication purposes (i.e. they may require further documents are supplied). Which is yet another reason why non-residents should appoint a Spanish-based law firm to handle this refund as only a Spanish address will be accepted for communication purposes.

2. If the profit exceeds the 3% retention, a non-resident will be expected to pay the remainder within three months of the sale.

Additionally, on selling, if a seller owes property-related taxes (see my article Non-Resident Taxes in Spain) the 3% retention withheld by a buyer by law (on account of a non-resident seller’s Capital Gains Tax liability) will be used to offset any owed tax by a non-resident seller (tax models 211 and 210). Do NOT expect the Tax Office to refund you the difference on the 3%; if you owe property taxes the tax authorities will pocket the full 3%. To avoid this you must first pay in advance the owed property tax (up to the last 4 years, as the statute of limitation time-bars any tax exceeding the four-year limit) plus any penalties or surcharges for late payment. Only once the outstanding property tax is settled, will they refund you the 3% withheld in full.

6.- Selling at a Loss (No Profit)

Today’s market is exceptionally tough for sellers. Vendor’s frequently sell at a loss so as to secure the quick sale of a property. It may come as a surprise when the Spanish Tax Office then tries to tax CGT when in reality there has been no profit.

The AEAT calculates the value of a property following rateable values. It is their understanding there is always some profit to be made on selling and any attempt to ‘conceal’ it may be taken as under-declaring; which of course is not the case for most sellers nowadays. Regardless you will be expected to pay CGT on selling (at a loss).

7. Fiscal Novelty Law 26/2014: Over 65-Year-Old Residents

Any capital gains made by resident taxpayers over 65-years-old will go untaxed (art. 24 Law 26/2014) when the sales proceeds are:

1. Reinvested in pension annuities.

2. Maximum of €240,000.

3. Six-month deadline.

This is in addition to the below main home tax relief.

8. Residents: Main Home Tax Relief if Over 65 (Absolute Relief)

Over 65-years-old residents are CGT exempt on selling their main abode (‘vivienda habitual’). Art 33.4b IRPF and 41 RIRPF.

9. Residents: Main Home Tax Relief if Under 65 (Rollover Relief)

Just a quick reminder that art 38.1 IRPF allows a resident seller to be CGT exempt on selling their main home providing the following conditions are met:

1. The seller must be resident in Spain.

2. The dwelling must be his main home (must have dwelled in it permanently for the three previous years art. 41 bis RIRPF). It may be less than three years in certain personal circumstances when the taxpayer was forced to change home as a result of job change, marriage or separation.

3. The sales proceeds are reinvested in acquiring a new main home (in Spain or else in the EEA/EU). Any part of the sales proceeds not reinvested will be taxed pro rata.

4. Deadline of two years to reinvest the sales proceeds (in a new main home).

This tax is a devolved (tax) competency to local authorities. Every town hall has competence to determine its own applicable rates within a scale. I cannot supply a chart with on-going rates as it varies significantly from one town hall to the next and is case-dependent. Lawyers need to liaise with the town hall where the property to be sold is located to obtain a final figure for the day of completion.

The tax is calculated on following both the rateable values of property and the number of years it has been in the possession of an owner (until the time of sale).

In most cases it is not significant, usually amounting to less than €1,000 but can be more in the case of villas with large plots of land.

Taxation on Selling Spanish Property – Conclusion

In my experience the Spanish Tax Office (AEAT) would seem to struggle understanding sellers’ plight on selling at a loss in today’s market. Don’t be surprised if, despite making a loss, you are still found liable to pay CGT by the ‘Agencia Tributaria’. And by the same token buyers are requested extra tax on buying under valued property as I explain in my article La Complementaria or Bargain Hunter Tax; they are two sides of the same coin.

Planning ahead is key to mitigate tax exposure on selling Spanish property. I strongly advise a seller hires a lawyer; with even more reason if non-resident. This ensures a seller complies in full with Spain’s tax laws and, given the case, may even opt for a refund on the retention (or part thereof) practiced at completion before a Notary Public. I remind the three per cent withholding retention only applies to non-residents on selling.

“If you fail to plan, you plan to fail” – Benjamin Franklin.

Founding Father of the United States. Exceptionally gifted scientist, inventor, diplomat, writer, printer, postmaster and political theorist. Even politician in his spare time; nobody’s perfect.

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Larraín Nesbitt Lawyers is a law firm specialized in taxation, inheritance, conveyancing, and litigation.We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

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About Raymundo Larraín Nesbitt

After completing his dual law degree in Madrid (ICADE) in 2003 Raymundo went on to work for prestigious Spanish and English law firms in Spain before moving to the UK for several years to work for a British multinational. He is a prolific writer of legal & financial articles in English, with well over 140 articles published and widely used in the Spanish real estate sector. Raymundo now runs his own law practice in Marbella, where he advises local and foreign clients on all legal matters with a focus on conveyancing and non-resident taxation. He is regularly quoted by the international press as a reliable source in his field of expertise.

Regarding your query, I would ideally need more information to give a concrete reply.

Supposing they each own it in joint names in equal parts then a 3% retention is practiced on the 50% appertaining to the non-resident on selling. So in reality only a 1.5% retention is being practiced on the overall selling price.

E.g. Property owned in joint names, 50% each. One is resident, other is non-resident. Selling price is €300k.

3% retention on the non-resident seller’s share would tally €4,500.

Depending on the gains made, he may (or may not be) entitled to a refund on the amount withheld.

The resident owner on the other hand would have no retention practiced on his 50% on account of him holding resident status.

A really good & concise article (8/12) which I’ve printed off for future reference but there’s still some confusion in my mind.
I (think I) understand the removal of the Abatement Coefficient – with special arrangements for properties purchased before 1994; then you say in your article that ‘Inflation adjustment still holds …(Inflation Relief). Everything else I have found says that both types of inflation protection have been scrapped. Is there any element of inflation protection for a property purchased in 2001? I appreciate that, in practice, there may not actually be any gain, it’s just the principle I’d like to be clear on.
Thanks

I deeply apologize for the confusion I have induced in you. You are correct; the government scrapped completely inflation relief and only partially abatement coefficients as from the 1st of January 2015 as a result of Law 26/2014.

In your particular case, for a property acquired in 2001, if you were to sell it after the 1st of January 2015 the reply is negative; I’m afraid you no longer qualify for inflation relief (of either kind). Had you acquired it prior to the 31st December 1994 a partial relief still holds in 2015 for values up to €400,000 (abatement coefficient).

These changes were precisely what prompted me to publish the above article hot on the heels of the approval of Law 26/2014 from the 28th of November as time was running out for sellers (less than a month at the time) wishing to still take advantage of said inflation reliefs. The capital gains tax for some vendors (dependent on when the property was acquired) would increase sharply as from 2015. Hence my rush.

In my haste to publish the warning I regretfully made the mistake you point out. I will now amend the article accordingly. Thank you for pointing it out David.

Hello again Raymundo,
A bit of further clarification please that might aid your readers.
Does the ‘Residents: Main Home Tax Relief’ (under 65s) apply to capital reinvested in another main home, outside Spain but an EU country. In reality this might be the likely scenario; one time ex-pat residents selling up to return to (in our case) the UK and looking to buy a home there.
Thanks & Regards
David

The Personal Income Tax (IRPF), thought for residents, doesn’t expressly contemplate this scenario (as it is entirely logical).

However there’s an ECJ ruling of 2006 on an almost identical case regarding Portuguese law which allows this tax relief so long as it is reinvested within a EU Member State.

Given also the ECJ’s landmark ruling of last 3rd of September, which stressed the EU’s core values of Free Movement of Capital and People (within the scope of the EU), it can be surmised this relief extends to sales proceeds reinvested in main properties within the EU, yes.

However, any part of the proceeds which is not reinvested within the two-year time frame will be taxed accordingly.

Raymundo,
Apologies if this is the wrong forum but here goes.
What happens to the ITP purchase tax on a second hand property if it is transferred to a family member at no cost? In our case we are considering gifting our second property to our son who is a working tax resident in Spain.
And if there is tax relief on such a gift, how is capital gains tax calculated when the property is subsequently sold on a normal commercial basis?
Thanks & Regards
David

On the subject of gifting, is it possible to gift a share in a property to a spouse without incurring taxes on the gift? We have a house that is owned 50:50 between my brother-in-law and myself.

We both consider that our shares in the house are held with our spouses (they did not come to sign documents as they were looking after the children). To remedy this In the UK I believe we could consider a ‘Declaration of Trust’ – this would acknowledge the ownership being held by both husband and wives.

Is anything similar possible in Spain or would we have to pay Capital Gains Tax, Plusvalia and Gift taxes? We have a high amount of base costs (expenditure) for capital gains tax calculation purposes, are these taken into account for Plusvalia or gift taxes?

1. DISSOLUTION OF JOINT PROPERTY OWNERSHIP. In your particular case you could follow what is known as a Dissolution of Joint Property Ownership if you wanted to re-arrange the shares but it necessarily implies terminating the situation of being joint owners. There would only be ONE owner with 100% of the holdings. The advantage it has is that the taxes to be paid are more than 80% lower than a standard sale. Buyer pays 1.5% Stamp Duty on the 50% he buys out. Seller pays, as per my above article on selling, both CGT and Plusvalia tax on his 50%. The tax advantage is for the buyer (your wife/s). More on this procedure in my article Dissolution of Joint Property Ownership:

2. STANDARD SALE. If what you want is to simply keep the existing joint owner situation but change your 50% over to your wife and your brother doing likewise with his partner then you can follow a standard sale (taxes are explained in my above article).

3. GIFTING THE SHARES. Regarding gifting the 50%, the giftor is liable for both CGT and Plusvalia tax (like a standard sale of property as described above) and the giftee (your spouses) are liable for Gift tax. Depending on which autonomous region the Spanish property is located in there are exemptions of up to 99% on paying Gift tax (in other words, the giftee may pay nothing). So the tax advantage would be for the giftee, your wifes.

As you can see it falls down to doing the Maths and see which one is more advantageous depending on your personal circumstances and preferences .

Hi Raymundo,
Firstly, Great Reading
Maybe you can help!
My property in Mallorca will be sold in September, ( deposits already paid)
I wish to purchase another property ( more expensive) in Mallorca within the next few months.
Will i still pay the tax on the new purchase, or by leaving my monies in Mallorca
is the Tax wavered.

If you are referring to Capital Gains Tax on the property you will sell in September, you have 100% allowance on it (rollover relief) as long as you meet ALL the following:

1. The seller must be resident in Spain.

2. The dwelling must be his main home (must have dwelled in it permanently for the three previous years art. 41 bis RIRPF). It may be less than three years in certain personal circumstances when the taxpayer was forced to change home as a result of job change, marriage or separation.

3. The sales proceeds are reinvested in acquiring a new main home (whether in Spain or else in the EEA/EU). Any part of the sales proceeds not reinvested will be taxed pro rata.

4. Deadline of two years to reinvest the sales proceeds (in a new main home).

5. This rule applies to under sixty-five year-olds.

Should you be over sixty five years old you are exempt from paying CGT (absolute relief).

I have a question regarding CGT and Spanish residents who sell their property and reinvest elsewhere. We are in that situation (living in Tenerife) and want to sell up here and re-invest back in the UK.

I see that you say CGT roll-over relief is available for reinvestment in any EU nation state (UK included): 3. The sales proceeds are reinvested in acquiring a new main home (whether in Spain or else in the EEA/EU).

It was my understanding that this is not the case and that the allowance only applied if the reinvestment took place within Spain. It was also my understanding that this was/is to be legally challenged because it contravenes the basic EU principles regarding freedom of movement and capital.

That would be tantamount to a discrimination between residents and non-residents on tax allowances. Something which the ECJ already ruled on last September quashing any such distinction. Spain was forced to amend multiple laws to adapt this criteria which is rooted in the very principles the EU is grounded upon (free movement of capital, people etc). Within the EU/EEA it is accepted. There is already a ruling on Portugal on an almost identical matter regarding a rollover relief.

I have a query regarding CGT payable on the donation of property located in the UK by a Spanish fiscal resident. My friend lives here (has done since 2009) and has her main residence here, and continues to own 2 properties in the UK. She would like to donate one of these properties to her daughter (UK resident) and I understand that this means that she will by subject to CGT here in Spain on the “gain” from the date of purchase (NOV 1993) to the date of the donation (NOV 2015). Can you confirm that this is indeed true and, if so, if there are any allowances that she will be given before tax is payable?

The gist is that a non-tax resident (i.e. UK tax resident daughter) may now benefit from the lenient tax allowances on donations set forth by the Autonomous Community/region where the property to be gifted lies

Fascinating article, most informative found to date. Hopefully you can help answer some burning questions for me.
My partner of 20+ years, we never married, and I jointly purchased our property in Spain in 2005. Sadly he died in 2014 and I purchased his 50% share of the property from his heirs in 2015 through a dissolution of joint property ownership.
I have been a fiscal resident since moving to Spain, This property has been my only and main home for the past eight years. I am over the age of 65. I am considering selling the property as it is now too big for me on my own, and moving into something smaller here in Spain.
As it is my only residence / main home what taxes am I subject to paying, and how can I work an approximate figure/cost out?
If I decide to sell it can the costs of sale inclusive of tax, be paid from the proceeds, or do they have to be paid upfront?
Kindest regards…..

I was informed that I would have to wait three years to be able to claim the 50% of the property I purchased from my partners heirs as my main home and would pay CGT on thie 50% should I sell it within a three year period of purchase! Can you confirm that no time scale applies in my case?

I believe the key misunderstanding is the legal concept of “vivienda habitual” or main abode. I stress this is a legal concept; it is not simply the property in which you live in all-year-round; it must meet a series of stringent requirements so the Tax Office regards it as your ‘permanent’ home and therefore allows you to apply the tax reliefs.

There are two reliefs, age dependent, albeit both require the property being sold is your main abode:

If you are under sixty five years old and you sell the 50% or 100% you bought you have a two-year period to re-invest the sales proceeds in another main home. During this two-year period you pay no CGT on the proceeds re-invested. If the two-year period elapses and you still haven’t sold the property, you lose the tax benefit.

However, to benefit from a roll-over relief the second provision below requires that you have lived in the property for the prior three years. It is one of five requirements you must meet. See below:

Quoting my above article:

“Just a quick reminder that art 38.1 IRPF allows a resident seller to be CGT exempt on selling their main home providing the following conditions are met:

1. The seller must be resident in Spain.

2. The dwelling must be his main home (must have dwelled in it permanently for the three previous years art. 41 bis RIRPF). It may be less than three years in certain personal circumstances when the taxpayer was forced to change home as a result of job change, marriage or separation.

3. The sales proceeds are reinvested in acquiring a new main home (in Spain or else in the EEA/EU). Any part of the sales proceeds not reinvested will be taxed pro rata.

4. Deadline of two years to reinvest the sales proceeds (in a new main home).

5. This rule applies to under sixty-five year-olds.”

—-

The legal Spanish concept of a ‘main abode’ (“vivienda habitual”) requires you to have lived in the property for the previous three-year period and you must be able to prove it i.e. utility bills, local taxes etc.

If you have just turned sixty five years old and attempt to sell a property in which you have lived in for less than a three-year period, under Spanish law, it would not be deemed as your main abode from a legal standpoint.

As a recap, regardless if over OR under 65 y.o., the legal concept of “vivienda habitual” (main abode) demands you have dwelled in a property for a three-year period (prior to selling). If you still have not met the three years, it is not legally a main abode or “vivienda habitual” and you can therefore not take advantage of the tax relief (whether absolute or roll-over relief).

I know laws can be at times a tad confusing but if it they were always clear and straightforward I would probably be jobless!

Thank you so much Raymundo, this has put my mind at ease?
I think the confusion lies in the fact the deeds where changed into my name as sole owner in April 2015, when I went through the dissolution of ownership and the purchase of my partners half value, and had the deeds changed to me being the sole owner of what was our home.
I have never moved from this property, I have never had a mortgage but have previous deeds stating both our names as shared owners. I pay taxes on my pensions here in Spain but don’t believe I pay any tax due to owning my home, should I be paying tax on owning a home?
Kindest regards…

1. That tax return you mention is for non-residents only (Non-Resident Income Tax) and has to be filed and paid annually before the end of December each year. If you are resident this does not apply to you.

However you will be expected to file and pay annually Wealth tax if your wealth exceeds €700,000. Your main home (main abode as the definition seen above in prior queries) adds a further €300,000 tax-free allowance. In other words, if you are resident in Spain and your assets (including main home) exceed €1,000,000 you will have to pay Wealth tax following a sliding scale on your worldwide assets.

2. As a resident you will be paying in August every year both garbage tax (sic) and IBI (akin to the UK’s Council tax).

3. You should also file tax model 720 if you hold overseas assets (i.e. in UK) over and above €50,000. This must be filed annually by the end of April each year. Fines on non-compliance are fairly stiff. Take advice if the latter applies to you. This is not really a tax; it is done to monitor resident wealth variation from one year to the next (assets held abroad).

As per my article, you must be both resident and over 65 to qualify from an absolute relief (no CGT is paid). If you are not, then you simply don’t qualify and pay tax.

This tax allowance is found only in the IRPF (Income Tax for Residents) not in the IRNR (Non-Resident Income Tax law). The law requires the property being sold is your main abode; if you are non-resident then it stands to logic it is not your main home. Long story short, non-residents over 65 y.o. are liable to pay CGT on selling;

Over 65-years-old residents are CGT exempt on selling their main abode (‘vivienda habitual’). Art 33.4b IRPF and 41 RIRPF.

Regarding your second point, I leave clear in the article’s conclusion, even on selling at a loss you are still expected to pay taxes. This is because local Tax Offices use rateable values which are not in line with today’s (real) values. More on why this happens, from a buyer’s perspective, but still equally relevant to a seller here:

Can I just ask about the six month deadline for selling a property. My husbands mother lived in Spain very happily but when she died her property was put in the hands of a trusted solicitor who took care of the sale as we were naive to Spanish law. He put the property for sale a very high price but now says we need to give him 10,000 euros within 6 days as a fine for not selling the property within six months. I can fine no reference to this fine anywhere and would appreciate your input.
Many thanks indeed

Hi Raymundo, great informative article.
I am (40 yrs old) reseident in Spain with my own home which i own with my wife. I am in the process of buying a second property that is in need of extensive renovation with two family memebers (neither resident or living in Spain), which we will run as holiday rental business when the work is finished. We are not planning on sellling the property for at least 5 years or more.
Would you advise buying the property as a private individual, self employed (autonimo) or an SL company?

I don’t know what you mean by buying a property as a self-employed? If you run your own business in Spain you must be registered as self-employed and pay a monthly contribution to the Social Security.

The property will be bought and registered at the Land Registry either as a physical person or though a company (i.e. S.L.).

There is no black or white answer which option is better, it depends of your needs.

If you buy through an S.L. you will have to pay at least 600 – 800 euros a year for bookkeeping services. You will need to lodge the accounts annually at the Company Registrar. Is this extra expense really worth it for you? On selling the property the sales tax you will face is higher than if you sold as a private individual (making less profits).

This article explains how someone can legally ‘shield’ their main home from business debts providing you meet the requirements explained in the article. There is no need to set up an S.L. to comply with this.

We sold our Spanish property in October 2014. We made a substantial loss on the sale to what we bought it for. Our solicitor told us we had to pay Spanish tax for capital gains (just short of 5000 euros), but would get it refunded within 6-9mnths because of having a loss. Yet 15mnths on and we are still waiting!

I don’t worry the solicitor too much, but am now getting frustrated it’s taking so long.

The Solicitor said the Spanish tax office is now taking over a year. Can you tell me if this is correct please? The property sold is in the region of Torrevieja, Costa Blanca.

The deadline is correct. The Tax Office is taking between 15 to 18 months to refund the 3% retention applied to non-residents on account of their CGT liability on selling property in Spain.

Having said this, you have sold at a loss and seem to be expecting a refund, correct? In my article above, I expressly mention in my conclusion that the Tax Office does not contemplate scenarios of selling “at a loss” and therefore does not refund on such grounds:

‘Taxation on Selling Spanish Property – Conclusion

In my experience the Spanish Tax Office (AEAT) would seem to struggle understanding sellers’ plight on selling at a loss in today’s market. Don’t be surprised if, despite making a loss, you are still found liable to pay CGT by the ‘Agencia Tributaria’. And by the same token buyers are requested extra tax on buying under valued property as I explain in my article La Complementaria or Bargain Hunter Tax; they are two sides of the same coin.”

Why are you so certain you will be refunded on having made a loss? Buyers are also suffering the same problem with la complementaria or bargain-hunter tax on buying BMV (below market value) properties. It is two sides of the same coin.

Has your lawyer assured you, in writing, you will be refunded on your loss?

The 20% does not apply to you as you are resident in Spain; that’s only for EU/EEA residents as I specify (non-residents). Residents, such as yourself, follow a sliding scale in tranches dependent on the profit made which I do not care to describe above. I cannot really say how much you stand to pay as I would need to ask you a host of questions and calculate your tax liability. Approx:

CGT liability for profits as resident in 2.015:

less than €6.000 = 20%
€6.000 – €50.000 = 22%
more than €50.000 = 24%

Yes you can deduct a whole lot of purchase expenses as per my article to mitigate the profit and thus reduce your taxable base or CGT exposure:

Thank you so much for this article! It does really help to understand all the ins and outs of Spanish property sale taxes.

I have a quick question, though, about the real “Plusvalia Tax”, not the CGT, for non-residents. We bought a house a few years ago in Spain to use as a vacation home, however my husband and I have divorced and neither of us wants to keep the house. We have agreed to sell it below market value to get rid of it fast and split the profit.

There is a potential buyer interested and we all initially agreed to pay costs and taxes per the law. We were going to proceed but a family member has told us that as non-residents we are not entitled to pay the plusvalía and the buyers and us now have a disagreement on who is responsible for paying the “Plusvalía Tax” (not the CGT). The source of the disagreement relies on the articulo 106.2 de la Ley de Haciendas locales which reads “tendrá la consideración de sujeto pasivo sustituto del contribuyente, la persona física o jurídica que adquiera el terreno, cuando el contribuyente sea una persona física no residente en España”

We are now really confused as to who is supposed to pay the plusvalía. Could you offer some enlightenment on this matter as we do not understand Spanish or know anything about law. Below is the article.

Your query is answered on the first line of the above article where it says:

“However it can be agreed in practice, and frequently is, that a buyer pays for Plusvalía tax.”

Plusvalia tax is normally borne by a vendor, however in practice it can be agreed a buyer pays for it. That´s what I explain in my article.

The reference you are making to the LRBRL rules on what is known as the ´sujeto pasivo sustituto´which is fancy name that means that if a non-resident vendor walks away after completion and does not pay for Plusvalia tax then the buyer will be legally forced to pay it (as the non-resident in a plane flying to God knows where).

In practice, once agreed it is the vendor who is liable for it, the buyer to cover himself will practice a retention at completion before the Notary to ensure the Plusvalia tax obligation is duly met.

Bottom line, you both need to agree who pays for it. If you don´t pay it, they are legally forced to pay it. But they can avoid this risk by practicing a rentention at completion. If you don´t agree the sale will fall through. In today´s market buyers are a precious commodity.

My daughters’ father died in 2007 when the girls were 7 and 9. They inherited his property and because they were minors, did not have to pay inheritance tax. I was told that as long as we held onto the property for seven years, there would be no tax to pay. Unfortunately, as the girls were under age, It would have been really complicated to sell anyway and i would have had to go through the courts to gain permission to sell on their behalf. We are UK residents, the girls have Spanish birth certificates and British passports. They are now 19 and 17 and would like to sell the property. The question is, how much tax would they have to pay? I thought they were exempt but now they are of age, they might have to pay capital gains? And once they sell, can they just transfer the money into an English bank account ? I would appreciate any advice you can give me

The fact that your daughters were underaged at the time does not exempt them from paying IHT.

Having said that, as a decade has elapsed since your husband passed away the IHT has timed out. The Spanish Tax Office can no longer claim the tax due.

To sell the property on they must first lodge the property under their names. This legal procedure will easily take over a year in your case and you must hire a lawyer to act on your behalf – you cannot do this on your own; no one can.

Once this has been done they are free to sell on the property. Yes, they will have to pay both CGT and Plusvalia tax as mentioned in my article above.

I strongly advise you to read my articles on Spanish Inheritance Tax for non-residents which explains the procedure in more detail:

Once your daughters have sold their Spanihs property they are free to move the sales proceeds to England. Careful with the bank charges; you should hire a curremcy exchange trader to mitigate this bill or else risk overpaying substantially.

Hola Raymundo
Thank you for your article which is giving us some hope!!!
I am still unclear if we qualify for CGT mitigation or not so here it is:
we bought our property in Spain in August 1989 for 80,000 pounds, have changed windows for double glazing which i believe qualify for a reduction, and completely refurbish the 3 bathrooms do they qualify?
We may have found a buyer and plan to sell for about 700,000 euros.
We understand about selling cost etc, but will we be able to use any abatement coefficients?
We are resident in UK.
Many thanks
Patrizia

I do not understand why you mention “I give you some hope”? You mean the applicable tax deductions, paying less taxes?

A property bought in 1989 stands to pay very little in cgt.

The abatement coefficients can be applied to your case as a one-time credit of €400,000. You may use it only once. This effectively knocks off 400k from the calculations for tax purposes.

Regarding your refurbishments, it is the Tax Office which decides if they accept them or not, it is not for me to say. I just gave a list above as usually accepted examples. But the Tax office changes its criteria from time to time on what it deems ‘acceptable’.

Following recent changes in the law, which now benefit non-residents, such as yourselves, these refurbishments costs can be offset against your tax bill. Providing you have original invoices with VAT etc. that can be submitted to the Tax Office. All in all you stand to pay very little in sales taxes as it is an old property.

My law firm offers conveyancing services if you are selling property in Spain:

I strongly advice you read my article Selling Property in Spain – 10 Reasons to Hire a Lawyer to avoid the common pitfalls braved by those who would sell in Spain without using a lawyer to represent them.

I wish I had come across this web site and it’s contents years ago. We had an apartment from 2003 until 2013. Whilst owners we paid all non resident taxes every year through our solicitor.

We sold in June 2013. There were issues for example we discovered that our solicitor never obtained a building completion certificate from the seller when we bought in 2003. To ensure a sale we paid €250 to obtain one for the buyers.

Since the sale concluded we have paid all necessary bills through retentions. We paid our solicitors fees and we have been refunded our 3% tax retention from the tax authorities. We have been honest throughout. Our Spanish bank account has been closed since January 2017.

I have now had an email from my old solicitor saying I must pay non resident taxes of €199 for the year 2016.

Having paid everything I was asked, and having received my 3% retention I believe I have fulfilled my obligations yet, more than a year from the sale, I am being asked for more money.

Surely having employed a solicitor to carry out all aspects of the sale on my behalf, using power of attorney (which we paid to set up) then this oversight must be the fault of the solicitor and I would expect them to pay the tax due as they have failed to carry out their duty as my fiscal representative.

Any advice or comment would be gratefully received. We are both pensioners and have not budgeted for this unidentified expense.

Thank you for your kind words. One of the goals on writing articles in SPI, besides lead generation, is to raise the awareness on multiple legal and financial issues that affect expats living in Spain. I remember how one of my managers at a law firm I used to work for made it a case in point to keep our clients in the dark on any matter. Something which I openly disagreed with her as it led to abuses.

On owning property in Spain, non-resident tax must be paid once a year to the Tax Office. If I have understood your post correctly, you make it sound like you no longer hold properties in Spain. You sold in 2013 and (presumably) moved back home to the UK.

I fail to understand how your lawyer can be asking you for funds to pay a tax which you are no longer liable for. Incidentally, our law firm charges less than half the legal fees for the same legal service you are being quoted:

One of these days I should write an article so people realize that legal fees between law firms in Spain vary significantly to the point that in some cases there are over 800% variations for exactly the same legal service. The only difference is that I get to write on internet and others publish 4-page ads in expensive glossy real estate magazines. I guess I should be doing that too.

I have been called Banksie by my friends for many years before the artist. I wish I had his talent though.

First of all thank you so much for your reply. I do not know here you find the time to produce so many comprehensive replies to all the queries you receive.

I made a typing error in my first question. We completed our sale on 23rd June 2016 and not 2013. Up to the sale I paid my Modelo 210 tax through my solicitor. The email I have received implies that I paid taxes in arrears and that I owe for year 2016
The solicitor says
“Hello Mr Banks, I need to inform you that you need to pay the tax till the date of the sale. This year we are paying the year 2016. I cancel your contract.”

My main issue is that I paid €1500 fees to the solicitor to carry out all that was needed to compete the sale and pay all bills/taxes as necessary. I did not expect a demand for taxes almost a year and a half later.

I have received letters from the Spanish Tax Office showing two amounts of €735 and €2205 (total 2940) which equates to the 3% retention. The letter shows there was a delay in paying this to me and a small amount of interest of €4.23 is included. Al this money has been paid and settled into my UK account. I thought that was everything.

The letters are supported by two model 210 forms showing the two amounts above. I think these forms were been completed and submitted by my solicitor. Both forms show a “fecha de devengo of 23/6/16” which is the date the sale concluded.

I am assuming that had I been liable for any other outstanding tax up to the sale date that this would have been taken at the time the 3% tax rebate was calculated and paid by the tax authorities. Am I correct on this assumption or do you think I am liable for the tax for 2016? If I am then I certainly do not think I should pay the full €199 which includes fees and should limit my liability to the actual tax due which has been about €60 to €65 each year.

I want to do the right thing but I feel the solicitor has let me down and should, as a matter of courtesy, pay this small outstanding amount of about €65 tax from their bill of €1500 (assuming the tax is actually outstanding). Am I being reasonable?

I will promote your web site to anyone who I find who is considering buying in Spain. I wish I had a much confidence in my old solicitor as I now have in you and your knowledge. I hope you find the time to respond

As per my article above on selling in Spain you are liable for two taxes: cgt and plusvalia.

From my understanding you already settled both and managed to get your 3% cgt refund back as well from the Tax Office. That is you sorted with the Spanish Tax Office. You are correct in your assumptions Banksie. Unless I am missing something this request is rather odd.

I don’t think you should be paying any further taxes in Spain providing you did move back home to the United Kingdom, much less the 199 euros you are being quoted to file a tax in December 2017 corresponding to 2016. For the life of me I cannot recall contacting a single client over the last 15 years to tell them they still had to pay taxes on the following year of a sale of their Spanish property. Do you imagine the reaction of my ex-clients asking them for more money a year later when they have already moved abroad and started a new life? It would be ludicrous.

Think of it the other way round. I sell up in the UK and move over to sunny Spain to start a new life. I settle my sales taxes with the HRMC and move on with my life. A year later, I receive a letter from my UK conveyancing solicitor while I’m basking in the sun demanding I pay him 200 pounds plus the tax due on the previous year I sold up? I’d tell him the cheque is in the post – with a big grin.-

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